Correlation Between Coca Cola and GameStop Corp

Can any of the company-specific risk be diversified away by investing in both Coca Cola and GameStop Corp at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Coca Cola and GameStop Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Coca Cola and GameStop Corp, you can compare the effects of market volatilities on Coca Cola and GameStop Corp and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Coca Cola with a short position of GameStop Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and GameStop Corp.

Diversification Opportunities for Coca Cola and GameStop Corp

-0.8

Correlation Coefficient

Coca Cola  GameStop Corp

Pay attention - limited upside

The 3 months correlation between Coca and GameStop is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and GameStop Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GameStop Corp and Coca Cola is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on The Coca Cola are associated (or correlated) with GameStop Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GameStop Corp has no effect on the direction of Coca Cola i.e., Coca Cola and GameStop Corp go up and down completely randomly.

Pair Corralation between Coca Cola and GameStop Corp

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 15.6 times less return on investment than GameStop Corp. But when comparing it to its historical volatility, The Coca Cola is 4.26 times less risky than GameStop Corp. It trades about 0.03 of its potential returns per unit of risk. GameStop Corp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,757  in GameStop Corp on September 20, 2024 and sell it today you would earn a total of  230.50  from holding GameStop Corp or generate 8.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

The Coca Cola  vs.  GameStop Corp

Coca Cola

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Coca Cola has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

GameStop Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GameStop Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, GameStop Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and GameStop Corp

The main advantage of trading using opposite Coca Cola and GameStop Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, GameStop Corp can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in GameStop Corp will offset losses from the drop in GameStop Corp's long position.

The idea behind The Coca Cola and GameStop Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.